Debt = Wealth ?

[see_change]

Thommo

I personally think that the D.... H... who posted you the pm is the one who should be removing themselves from the forum forth with .

I appreciate the input you have put into the forum , and having had a long conversation with you over the phone are aware that you are as genuine and as well intentioned as anyone else on the forum.

Just because someone thinks that your comments don't confirm to the " brainwashed , party line" that is at times present around here doesn't mean that your view is anyless valid than anyone elses.

There are very few Genuine experienced long term property investors on this forum . I can count the ones I know on one hand and at least two of those have been decreasing their exposure to the market over the last year or two , because they have concerns.

Most of the people who I know who are doing very well have basically made their money in the current cycle , and havn't experienced the actual reality of a down turn. There are some members of this forum who may well be in for a nasty shock in the next few years.

I have met several people over the last few years who went bankrupt in the previous property cycle by over exposure.

You've had a life time of experience , and I think this place would be poorer without you.

Please reconsider your decision

See change

 

[annE]

Hi Thommo

Please don't leave. This forum is about being OPEN to all lines of thought. It could well be that your 'attitude' was a little too close to his/her fears about what might occur in the next few years.

annE

 

[NigelW]

Yesterday my wife and I had another open and "frank" exchance of views in regard in regard to (my) debt.

Me:
"Prices on more expensive homes in the Sydney North Shore are coming down (a little) I think we should act in the next 6 months: dual occupancy rules have recently been changed in Ku-ring-gai (upper north shore) area, we could buy a dual occpancy site, build our dream (Japanese style) home and another for rental (to Japanese corp ex-pats)"

Wife:
"How much would that cost?

Me:
"$1.5 to 2.2M depending"

Wife:
"How can we do that we dont have any money?"
( No money for my wife means no large term deposits in banks)

Me:
"Finance and our LOC of course"

Wife:
"I dont want any more debt, I hate being so poor."

Wife:
"Sell them (IP's) all now, pay off all debt put the money in the bank for latter, then we can think about buying just one house"
(meaning one house for cash)


In this"How did you start" thread tomdaher said:



I concur, if you invest as much capital at your disposal into investments you expect to gain at a rate higher than the cost of capital then why not take on as much debt as you possibly can?

For most of us when we were young the "debt" = "poor" equivance was drumed into us. In Jan's books she talks about this subject, but how many of you agree with the opposite:

Debt = Wealth


General Rule of Investors:The greater debt. the greater net wealth.

Naturally long term increasing debt level on consumerable goods (eg Cars), is drawing you into a world of pain, a different subject in my opinion, this is not capitalism => I am talking capitalism here.

Of course another factor comes in, risk of capital, we should of course seek to create returns in excess of our cost of funds but we also need to make allowance for risk, common sense really, the greater the chance we could loose our (or some) capital the greater the return we would expect before we would invest.

So how many of you in your hearts would agree with
"Given well prepared steps have been made to limit the risks, would you take on as much debt as possible if you could find investments expecting to show returns (returns + gains) in excess of the cost of funds?"

Hi AL

I've just learned to live comfortably in debt . The key risk mitigation is ensuring your servicability can handle stress (remembering bad things tend to happen in threes ).

So if you've got sufficient cashflow, an adequate but not extravagant cash reserve and adequate insurance (most people either forget to insure or underinsure their income and property) then you'll be fine.

Your wife is crying poor, perhaps you need to treat her a bit more???
Maybe you need to reframe your wife's approach - what does she hate more: no milano blahniks or having to go to work for the next 30 years???

Cheers
N.

 

[Sunfish]

Thommo

I personally think that the D.... H... who posted you the pm is the one who should be removing themselves from the forum forth with .

I appreciate the input you have put into the forum , and having had a long conversation with you over the phone are aware that you are as genuine and as well intentioned as anyone else on the forum.

Just because someone thinks that your comments don't confirm to the " brainwashed , party line" that is at times present around here doesn't mean that your view is anyless valid than anyone elses.

There are very few Genuine experienced long term property investors on this forum . I can count the ones I know on one hand and at least two of those have been decreasing their exposure to the market over the last year or two , because they have concerns.

Most of the people who I know who are doing very well have basically made their money in the current cycle , and havn't experienced the actual reality of a down turn. There are some members of this forum who may well be in for a nasty shock in the next few years.

I have met several people over the last few years who went bankrupt in the previous property cycle by over exposure.

You've had a life time of experience , and I think this place would be poorer without you.

Please reconsider your decision

See change

Seech, This post and three personal messages of support I have recieved are more than worthy of a response.

To respond at all makes me seem a dummy spitter and drama queen but not to respond would make me look churlish. Such a dilemma!

VERY briefly, I have felt for some time now that my message has become repiticious and if that was so I was happy to pull up stumps, so therefore it wasn't a dummy spit. I tagged the "suicide note" at the end of an old thread so as not to make a big deal of it. If leaving a note makes the suicide a drama queen so be it.

It was always my intention to continue to read the forum because I believe there are many posters here who are both knowledgeable and generous with their time. So much to learn!

Thanks for your thoughts....... Thommo

 

[BV]

I would take a higher risk than normal provided risks were managed.

As the poll results suggest a lot of people would do the same
but this does not mean that the members who voted differently are wrong. They just have a different opinion and that is respected.

Thats what makes a forum interesting.

 

[BV]

Thommo,

Your opinion is also valued and respected
You can express your opinion without jumping into conclusions about
someone's intentions.

I personaly don't mind your presence in the forum, in fact I enjoy difference of opinion because it makes us think. We are all here to learn from each other.
I think we all have something to contribute and I would also like you to stay.

 

[Sunfish]

I'm sorry but you are 100% wrong. But I'm tired! I want to sleep! Take away the light! I'll confess to ANYTHING!!!! Pleeeese let it end.

 

[sbe]

Sorry Thommo - there is no rest for you !!!

 

[Peter_Tersteeg]

There's a distinction between good and bad debt. There's plenty of people who are on high incomes with huge credit card debt who I would not consider wealthy at all, simply because their debt was not used to purchase (appreciating) assets.

There's also those who have built up a portfolio of assets who have little to no debt. They will probably be able to fund their retirement quite comfortably, living off the income and capital from assets they've aquired over time, regardless of how they were funded/obtained.

I think the goal of most in this forum is to use debt wisely to aquire assets which will generate wealth through capital gains, income streams, cashflow, etc. Simply put, debt is not the equivalent of wealth, but it can be used to aquire wealth more rapidly than might be otherwise possible.

At this point I have a substantial amount of debt and a reasonable amount of wealth. If someone gave me enough cash tomorrow for the strict purpose of elimiating my debt I would do so happly. This would mean I didn't have to service that debt and my cashflow alone would be significant enough to be somewhere other than this lousy office.

 

[always_learning]

There's a distinction between good and bad debt.
...
Simply put, debt is not the equivalent of wealth, but it can be used to aquire wealth more rapidly than might be otherwise possible.

At this point I have a substantial amount of debt and a reasonable amount of wealth. If someone gave me enough cash tomorrow for the strict purpose of elimiating my debt I would do so happly.

What I was considering is general perceptions about debt, in my family and in my wife's family this statement is unquestionably true:

"debt" = "poor"

and seems to have been drumed into us since birth.

The opposite of the above is this statement:
"debt" = "wealth"

Also I have observed that wealthy people tend to have bigger debts than average and normally dont fret about taking on more debt (given a good enough investment).

Good investors seem to be constantly looking for excellent investments rather than worrying about how to reduce debt to zero. Thus the better question is how to manage debts (finance) better, to how to minimise exposure to problems that may occur in the future.

Is our fear of debt overwhelming what otherwise is case of proper invesment risk manangement (cashflow, asset protection etc)?

PT_Bear, what about if someone did give you a war-chest filled with money and give you two options

• Reduce Debt
• Further (IP?) investments with at least a 50/50 gearing ratio.

Which would you choose?

 

[Peter_Tersteeg]

PT_Bear, what about if someone did give you a war-chest filled with money and give you two options

• Reduce Debt
• Further (IP?) investments with at least a 50/50 gearing ratio.

Which would you choose?

That's a no brainer. Like most here I'd use the war-chest to aquire more assets using a gearing strategy.

I agree entirly that there has been the perception that debt=poor in the general public and that the perception in the forum tends towards debt=wealth. My perception is simply that debt is a tool and depending on how it is used, the results can be poverty or wealth.

Debt is not the only means through which wealth can be acheived, but through propper application it can be used to accelerate the road to wealth. At the same time, through abuse it can make a well off person very poor.

 

[Aceyducey]

What I was considering is general perceptions about debt, in my family and in my wife's family this statement is unquestionably true:

"debt" = "poor"

and seems to have been drumed into us since birth.

The opposite of the above is this statement:
"debt" = "wealth"

Always_Learning,

Your wife's family - and I'd suggest many people in Japan, have an attitude similar to people who lived through the Great Depression....

It can take a generation or so to dispel this, meanwhile those who can shrug off the psychological effects can build a substantial asset base in a reasonably short period of time

I've seen a mini-level of this in Canberra as well, where for several years people were cautious about property given they saw prices go backwards up to around 25% in the early 90s.....That attitude has almost entirely disappeared now (it wasn't such a psychological blow for people).

I don't know if there is any way of 'breaking' this kind of negative psychological conditioning from the outside....perhaps a few years of 30%+ growth would help

BTW: given your scenario to PT_Bear, right now I'd buy a certain number of cashflow positive properties outside of AU, retire a bit of debt & put funds into other areas of investment. Aim would be to increase our base cashflow & maximise our investment growth.

Cheers,

Aceyducey

 

[sbe]

I understand your point AL.

I grew up with Debt = Bad. Then again, the debt my parents had was HP for a car (bad), loan for house (PPOR - good in reality), and bankcard (bad - for them anyway).

I was really nervous when I bought my first PPOR - so much debt ($72,500 in 1990). A fair while later (some 7 years), we bought our first IP. With my superior savings ability, the PPOR loan was now $74,000 (well, needed car etc - you know the story). First IP cost $68,000 and we spent another $6,000 fixing it up.

Talk about nervous. We now owed twice as much money.

However, over time, you get used to it - almost oblivious to it. Then blaise about it. Then you add.....

Now, I think debt is a tool. It can be used for good or bad. I choose (well, now at least) to use it for good.

My wife and I are comfortable with the level of debt we have - and to me that's the key. This game would be mighty hard if you're fighting against each other on money issues. The trick is to get her to understand how good vs bad debt works. Then, agree on a level that works for you as a family / couple. Whatever LVR you are comfortable with as a family is best. Then work out what you can do with that. Review it occasionally as the family become more used to it.

Best of luck.

Simon.

 

[Peter_Tersteeg]

This reminds me of a quote from the Simpsons made by Reverend Lovejoys' wife:

In future I promise to use my gossip only for good, instead of evil.

My parents are also from the debt=bad generation. They know I've got debt and they don't think I'm poor. They have used debt before to buy property, but paid it off as quickly as possible. I've always considered them to be reasonably wealthy and will retire reasonably well off.

The difference between them and myself is that I don't want to work myself to the bone for 40 years to achieve this.

 

[np2003]

The only problem I see with debt is not being able to service the loan when something goes wrong with your job.

I've always had this scary thought.

Go out and buy 10 good properties.

One day, one loses his job, then is forced to sell the properties. However, due to the state of the property market, houses take much longer to sell than anticipated and because there are so many sellers vs buyers the market will pay 10-15% less than what this person originally paid for them.

So in essence this person has lost a lot of money.

Is this a realistic fear or am I thinking the wrong way?

 

[perky29]

Is this a realistic fear or am I thinking the wrong way?


NP2003 - that is definitely a realistic fear....
We had the same fear some 2 years ago when we bought our second IP (after waiting for 8 years after the 1st one was bought - and at that point in time was still worth 30k less than what we had paid for it)....but my wife and myself agreed that if all things went bad we could sell PPOR and live in Windsor!!! (30 mins down the road).
But we took the plunge again , and the rest is history (so they say).
But we had a backup plan in case I lost my job (which was not all that safe 2 years ago).

 

[Aceyducey]

Is this a realistic fear or am I thinking the wrong way?

It's a potential event, but only a fear if you are thinking the wrong way.

Some ways to plan for this potential event:

1) Buy positively/neutrally geared properties. You can hold as many as you like & costs you nothing.

2) Refinance a property & live off the LOC until securing another job.

3) Sell one property & live off the proceeds until securing another job.

4) Build relationships & networks while at work so you always have a back door.

5) Negotiate with your bank to reduce your loan repayments for a period while you resolve the income issue. Remember that if you can't repay your loans & the bank can't resell your property quickly, it's the bank who has the problem, not you!

Frankly if you live in fear of losing your job you are not in control of your life. NEVER enter a situation where you are not in control.

NEVER allow anyone else to put you in a position of weakness.

Always keep in mind the true risks (not fear, risk) and have back-up plans.

Try to have an abundance mindset not a scarcity one. Money is easy to come by.

And never hold grudges

Cheers,

Aceyducey

 

[always_learning]

"And never hold grudges"

Let me have just one: APEX car rental in Perth, rented a car returned it in perfect condition to the airport, 8 weeks latter in Japan got a charge of $795 on my credit card for "damages". Called them up to complain, but they had not photographic evidence of the damage and they had auctioned the car after the "damages" had been repaired, in fact the damages was only a quote from the repair shop and the car was auctioned "as is". American Express refused to deal with my complaint becuase I had signed a rental agreement agreeing to pay for damages.

Forgive and forget....No way, a line must be drawn and should not be crossed. One day in some way I want some "payback", even if it does cost me even more money!

 

[np2003]

Wow they are some good tips Acey, thanks!

 

[Tibor]

"And never hold grudges"

Let me have just one: APEX car rental in Perth, rented a car returned it in perfect condition to the airport, 8 weeks latter in Japan got a charge of $795 on my credit card for "damages". Called them up to complain, but they had not photographic evidence of the damage and they had auctioned the car after the "damages" had been repaired, in fact the damages was only a quote from the repair shop and the car was auctioned "as is". American Express refused to deal with my complaint becuase I had signed a rental agreement agreeing to pay for damages.

Forgive and forget....No way, a line must be drawn and should not be crossed. One day in some way I want some "payback", even if it does cost me even more money!

What a story! In the past when I had an issue with any supplier AMEX always helped me and I got a refund and so were others, so I am relly surprised to hear your story. Anyway what I have learned from this story;

1) Do not use a company called APEX as their business practices are very dubious and you might get screwed by them.

2) Do not pay with AMEX for ANY car rentals as they do not support you when the supplier will try to screw you.

So, congrats to both companies for work well done, this is the way to loose customers!!!

For you AL, my only suggestion would be to contact one of the current affairs (www.todaytonight.com.au - Channel 7 - or www.aca.ninemsn.com.au channel 9-) with the proof you have and if they pick up your story, believe me you had your payback big time! I am sure you will get your money back and also an apology for the "misunderstanding"!

2c.